Calumet Inc (CLMT) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2009 Calumet Specialty Products Earnings Conference Call. My name is Deanna, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today, Ms. Jennifer Straumins, Executive Vice President. Please proceed.

Thank you, Operator. Good afternoon, and welcome to the Calumet Specialty Products Partners investors call to discuss our fourth quarter 2009 financial results. During this call, Calumet Specialty Products Partners will be referred to as the Partnership or Calumet. Also participating in this call will be Bill Grube, our President and CEO, and Pat Murray, our CFO. Following the presentation, we will hold the line open for a question and answer session.

During the course of this call, we will make various forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such statements are based on the beliefs of our management, as well as assumptions made by them, and in each case, based on information currently available to them. Although our management believes that the expectations reflected in such forward-looking statements are reasonable, neither the Partnership, its general partner, nor our management can provide any assurances that such expectations will prove to be correct.

Please refer to the Partnership's press release that was issued this morning, as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results and to cause them to differ from our forward-looking statements made in this call.

We had several positive things that occurred during the fourth quarter that we expect will help strengthen our future results. First, we finalized our Specialty Products agreements with LyondellBasell during fourth quarter. We expect that these agreements will give us approximately 3,800 barrels a day of additional specialty products to market.

In addition to the LyondellBasell agreements, we completed a follow-on public offering in December. We sold an additional 3 million common units to our underwriters at a price to the public of $18 per common unit. We received net proceeds of approximately $52.3 million, which includes our general partner's contribution. We used these proceeds to pay down borrowings under our revolver.

And finally, we were able to increase our quarterly cash distribution from $0.45 per unit to $0.455 per unit. We did battle both increasing crude oil prices and very weak fuel crack spreads during the quarter. However, in spite of higher crude prices and lower crack spreads, we feel we delivered strong results during the fourth quarter. The fourth quarter is historically our weakest quarter from a demand standpoint, but we have continued to see demand for our Specialty Products increase as the economy continues to recover.

We finished 2009 in compliance with all of our financial covenants pursuant to our credit agreements, which are measured quarterly. While assurances cannot be made regarding our future compliance with these covenants, we believe that we will continue to maintain compliance with all of the covenants in our credit agreements. We also are continuing our fuels products and crude oil hedging programs. These programs help protect us against rapid changes in pricing levels for both fuels products as well as crude oil.

As we announced on January 5, 2010, the Partnership declared a quarterly cash distribution of $0.455 per unit for the quarter ended December 31 on all outstanding units. The distribution was paid on February 12 to unitholders of record at the close of business on February 2, 2010.

And as many of you may have read, we did experience an explosion in one of our environmental units at our Shreveport refinery on February 5. No injuries were reported related to this incident, and our management team at the facility has been successful in working with the Louisiana Department of Environmental Quality to find an alternate operating plant during the repair of this unit. Required alterations have been made at the refinery, and it is in the process of restarting now. We expect to be at planned lube oil production levels by Friday, February 19, and we do not estimate that this incident will have a major impact on our 2010 results.

I'd now like to turn the call over to Pat Murray, for a review of our financial results.

Thank you, Jennifer. Net income for the fourth quarter of 2009 was $8.2 million, compared to net income of $18.5 million for the same period in 2008. The Partnership's net income, quarter-over-quarter, decreased by $10.4 million, due primarily to both a decrease of $46.6 million in gross profit and an increase of $4.3 million in selling, general, and administrative expenses, partially offset by increased derivative gains of $39.7 million.

We believe the non-GAAP measures of EBITDA, adjusted EBITDA, and distributable cash flow are important financial performance measures for the Partnership. EBITDA and adjusted EBITDA, as defined by our credit agreements, were $32.2 million and $26.8 million, respectively, for the fourth quarter of 2009, as compared to $44.2 million and $13.6 million, respectively, for the same period in 2008. The Partnership's distributable cash flow for the quarter ended December 31, 2009, was $18.4 million, as compared to $3.1 million for the same period in 2008.

The increase in adjusted EBITDA, quarter-over-quarter, was primarily due to increases in realized derivative gains of $51 million to a gain of $5.1 million in 2009, offset by lower gross profit of $46.6 million. We encourage investors to review the section of the earnings press release found on our website entitled, Non-GAAP Financial Measures, and the attached tables for discussion and definitions of EBITDA, adjusted EBITDA, and distributable cash flow financial measures and reconciliation of these non-GAAP measures to the comparable GAAP measures.

Gross profit by segment for the fourth quarter of 2009 for Special Products and Fuel Products was $27.5 million and $7.1 million, respectively, compared to $77.7 million and $3.5 million, respectively, for the fourth quarter of 2008. Specialty Products segment gross profit, quarter-over-quarter, was primarily impacted by lower overall Specialty Products selling prices in relation to crude oil prices, due to lower demand resulting from the economic downturn, partially offset by increased sales volume of Specialty Products.

The increase in Fuel Products segment gross profit was due to higher gasoline crack spreads on our unhedged gasoline sales in the fourth quarter, as compared to the same period in 2008. This increase was partially offset by lower crack spreads on our unhedged diesel and jet fuel sales, quarter-over-quarter, as well as a larger deferral of crude oil hedging losses in the fourth quarter of 2008 as compared to the fourth quarter of 2009 in our Fuel Products segment.

Selling, general, and administrative expenses increase $4.3 million to $8.9 million in the fourth quarter 2009 from $4.6 million in the fourth quarter of 2008. This increase is primarily due to increased incentive compensation costs in the fourth quarter as compared to the same period in 2008.

Interest expense decreased $1.3 million to $8.2 million in the fourth quarter of 2009 from $9.6 million in the fourth quarter of 2008, as a result of reduced interest rates and lower balances being carried on our revolver and term loan at December 31, 2009, as compared to the prior year. The increased derivative gains of $39.7 million, quarter-over-quarter, was due primarily to the 2008 settlement of certain crude oil derivative instruments that experienced a significant decline in value as crude oil prices declined in the fourth quarter of 2008.

As of December 31, 2009, total capitalization consisted of Partners' capital in the amount of $485.3 million and outstanding debt of $401.1 million, comprised of borrowings of $371.2 million under the term loan facility, with an unamortized discount of $13 million on the term loan, borrowings of $39.9 million under the revolving credit facility, and a long-term capital lease obligation of $2.9 million.

The $12.1 million increase in Partners' capital from December 31, 2008, to December 31, 2009, was primarily due to net income of $61.8 million and $52.3 million in net proceeds related to our December public equity offering, offset by $59.3 million in distributions to our partners and a $42.9 million decrease in other comprehensive income, primarily due to a decrease in the fair market value of our derivative instruments.

At December 31, 2009, we had availability under our revolving credit facility of $107.3 million, based on $194 million borrowing base, $46.9 million in outstanding standby letters of credit, and outstanding borrowings of $39.9 million. We believe that we have sufficient cash flow from operations and borrowing capacity to meet our financial commitments, debt service obligations, contingencies, and anticipated capital expenditures. However, we are subject to business and operational risks that could materially affect our cash flows.

For example, material -- a material decrease in our cash flow from operations or a significant sustained decline in crude oil prices would likely produce a corollary material adverse effect on our borrowing capacity under our revolver, and potentially our ability to comply with the covenants under our credit agreements.

Substantial declines in crude oil prices, if sustained, may materially diminish our borrowing base, which is based in part on the value of our crude oil inventory, which could result in a material reduction in our borrowing capacity under our revolver. A significant increase in crude oil prices, if sustained, would likely result in increased working capital funded by borrowings under our revolver.

Now, I'll turn the call over to Bill.

Thank you, Pat, and Jennifer. This concludes our remarks. We will now be happy to answer any questions you may have. Operator, could you please confirm if there are any questions?

(Operator Instructions)

And we have a question from Darren Horowitz, Raymond James. Please proceed.

Good afternoon. Thanks. Jennifer, just a few quick questions, if I could. First, based on what you see today within the specialty products market, what can you do on the cost line to offset the impact that crack spreads are having on gross margin?

What we're trying to do is focus more on Specialty Products, as we always have, and as crude oil moved up into the low 80s earlier this year, we were able to implement price increases across all of our product lines, and that has helped some, as well. We are running our Shreveport refinery at levels where it is profitable, based on where we're hedged for our crack spreads. Our hedging program is working great. Right now, basically, we're producing just the amount of fuels that were hedged.

Okay. And in terms of capacity utilization, what's that number at Shreveport?

We're using -- we're about 75% capacity utilization at Shreveport right now.

Okay. And what -- did you mention the costs that are associated with the repair at Shreveport?

We do not have those numbers yet.

Okay. Last question. Last quarter you had mentioned that you had expected to spend about $10 million this year to diversify your product mix. Is that still the goal?

$10 million is our gross CapEx number for the year, yes.

Okay. And can you just remind me what your maintenance CapEx for full year 2010 is, please?

Approximately $20 million.

Okay. Thank you.

(Operator Instructions)

And we have a question from the line of David Bird, Caywood-Scholl. Please proceed.

Hi. I also had a question about the cost to repair the damage. I know you don't have those yet. Are you expecting to disclose those numbers before next quarter, or do you think that'll come through in the following quarter?

We don't expect those numbers to be material.

Okay.

Probably going to be just a couple million bucks at the most, probably.

Okay. Okay.

Between $1 million and $2 million, at the most.

All right.

It will just fall under our normal CapEx type of programs.

Okay. And what about the effect on base oil and process oil production? Can you give us an estimate of volumes that were lost there?

We have -- we will have been down two weeks.

Okay.

We did go -- luckily, we did have quite a bit of inventory at the time of the event --

Okay.

And have continued to sellout of inventory during the past several weeks.

Okay. All right. All right. So does that -- the unit that was damaged -- does that affect mainly base oil production or process oil production or --?

Well, it's an environmental unit, so what it does is it limit -- it impacts the amount of sulfur that we can release into the atmosphere. And that has caused us to have to shut down our hydrotreating and any catalytic dewaxing type of units. We've continued to produce gasoline and run crude during this period. So we've got quite a bit of work in process, inventory built up in front of our lubes producing units, which we -- as soon as we're started up, we'll be able to run at full rates --

Okay.

And make up capacity there.

All right. That was my next question. That's fine. Thank you. I appreciate that. That's all I have.

Thank you.

(Operator Instructions)

And there are no more questions at this time. I'd like to turn the call back to Jennifer Straumins for any closing remarks.

Thank you, Operator. This concludes our Specialty Products Earnings Conference Call covering our fourth quarter results. Thank you very much for your participation in the teleconference, and note that this teleconference will be available for reply using the instructions contained in our press release. Have a great afternoon, everybody.

And, ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect, and have a good day.